Explain the institutional mechanism through which the RBI is held accountable for inflation target deviations under the RBI Act, 1934.

The amendment of the RBI Act, 1934 in 2016 replaced discretion with a statutory Flexible Inflation Targeting (FIT) framework, under which the Centre notifies a CPI inflation target — currently 4% with a 2–6% tolerance band — and the RBI is legally answerable for meeting it [1]. Accountability here is not political but rule-based, operating through a defined trigger, a reporting duty and continuous disclosure.

Statutory foundation and the rate-setting body

• Under Section 45ZB, a six-member Monetary Policy Committee (MPC) — Governor (chair), a Deputy Governor, one RBI officer, and three external members with four-year terms — sets the policy repo rate to achieve the target [1][3].
• The MPC meets at least four times a year, with the Governor holding a casting vote in a tie, fixing responsibility collectively on the committee [1].

The accountability trigger

• "Failure" is defined objectively: average inflation above the upper tolerance level of 6% (or below 2%) for three consecutive quarters [1]. A print above the 4% midpoint alone — such as July 2026's 4.45%, driven by food inflation of 5.52% — is a deviation, not a statutory failure [2].

The reporting duty — Section 45ZN

• On failure, the RBI must submit a report to the Central Government stating the reasons for the failure, the remedial actions proposed, and the estimated time for returning to target [1].

Continuous transparency instruments

• Minutes with individual votes and rationales are published 14 days after each meeting, exposing every member's stance to public scrutiny [1].
• A half-yearly Monetary Policy Report (Section 45ZM) assesses inflation dynamics, projections and past forecast performance [1].

Thus accountability is layered — objective trigger, explanatory report, and continuous disclosure — which has kept inflation within the band most of the time and led the Government to retain the 4% target for 2026–31 [4]. Strengthening this with better food-supply data and closer fiscal-monetary coordination would further anchor expectations and secure price stability as a public good.